Benchmarking—what are normal measures of financial performance in a law firm?
Produced in partnership with Robert Mowbray of Taylor Mowbray LLP
Benchmarking—what are normal measures of financial performance in a law firm?

The following Practice Management guidance note Produced in partnership with Robert Mowbray of Taylor Mowbray LLP provides comprehensive and up to date legal information covering:

  • Benchmarking—what are normal measures of financial performance in a law firm?
  • What key aspects of performance need to be measured?
  • Analysing and benchmarking key aspects of performance
  • Other measures of performance
  • Where can you get benchmark information from?
  • How do you use benchmarking data to create a plan of action?

This Practice Note provides information about different ways of measuring financial performance in a law firm. It also provides guidance on how to analyse and benchmark financial data to compare performance against previous years and competitors.

What key aspects of performance need to be measured?

Law firms need to consider both income and expenditure together with cash flow to ensure the firm does not run out of money. This financial information needs to be reviewed regularly, at least monthly.

Budget holders should be tasked with monitoring any figures for which they are responsible.

Fee income

The amount of fee income generated by a firm is variable and this influences the profit earned. There should therefore be close scrutiny of the fees generated, ideally on a monthly basis. Declining fee income could signify the firm may be approaching difficult times, especially if expenses remain static or increase and/or the firm is experiencing increased competition in the marketplace, see Precedent: Fee income monitoring.

Expenses

Expenses are often referred to as overheads. In law firms, most major expenses are likely to continue at a similar rate for long periods, irrespective of the amount of work being completed. Major expenses include:

  1. salaries

  2. property costs

  3. office equipment

  4. IT expenditure

  5. insurances

Someone within your firm should monitor expenses to ensure they remain within budget, eg the practice manager, accountant or